Aehr Test Systems (AEHR) 2020 Q3 法說會逐字稿

Good day, and welcome to the Aehr Test Systems Third Quarter Fiscal 2020 Financial Results Call.

Today's call is being recorded.

At this time, I would like to turn the call over to Mr. Jim Byers of MKR Investor Relations.

Please go ahead, sir.

Thank you, operator.

Good afternoon, and welcome to Aehr Test Systems Fiscal 2020 Third Quarter Financial Results Conference Call.

With me on today's call are Aehr Test Systems' President and Chief Executive Officer, Gayn Erickson; and Chief Financial Officer, Ken Spink.

Before I turn the call over to Gayn and Ken, I'd like to cover a few quick items.

This afternoon, Aehr Test issued a press release announcing its third quarter fiscal 2020 results.

That release is available on the company's website at aehr.com.

This call is being broadcast live over the Internet for all interested parties, and the webcast will be archived in the Investor Relations page of the company's website.

I'd like to remind everyone that on today's call, management will be making forward-looking statements that are based on current information and estimates and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements.

Those factors that may cause results to differ materially from those in the forward-looking statements are discussed in the company's most recent periodic and current reports filed with the SEC.

These forward-looking statements, including guidance provided during today's call, are only valid as of this date, and Aehr Test Systems undertakes no obligation to update the forward-looking statements.

And now with that, I'd like to turn the conference call over to Gayn Erickson, President and CEO.

Thanks, Jim.

Good afternoon to those joining us on today's conference call and also listening online.

Ken, our CFO, will go over our third quarter financial results later in the call, but first, I'll spend a few minutes discussing our business and product highlights, including our continued progress with our wafer-level and singulated die test and burn-in solutions.

And then we'll open up the lines for your questions.

Before I discuss our performance and financial results for the third quarter, I'd like to say a few words about the impact of the coronavirus and our response to this global pandemic.

First, I'd like to express our heartfelt concern to all of those who've been impacted.

And to everyone listening today, I hope that all of you and your family and friends are staying safe and healthy.

As the COVID-19 pandemic continues to unfold, our foremost concern at Aehr Test is to ensure the health and safety of our employees, their families and our worldwide community.

As of today, I feel fortunate to report that none of Aehr Test direct employees or their immediate families have contracted the virus.

On March 19, 2020, the Executive Department of the State of California issued an executive order, ordering individuals in the state of California to stay home or at their place of residence, except as needed to maintain continuity of operations of the federal critical infrastructure sectors.

Aehr is a global supplier to critical infrastructure, specifically companies in the IT, communications and manufacturing sectors that require semiconductor components.

As such, we're taking extraordinary measures to maintain continuity of our operations and to continue to safely operate with full capacity available in manufacturing and across the company to support the vital needs of our critical infrastructure customers while complying with the local and state-mandated shelter in place directives.

Wherever possible, our employees continue to work from their residences using the best possible remote communication and collaboration tools available as well as securely accessing remote operation of our tools at our facilities and also at our customer sites.

While working remotely, our R&D and applications teams continue to be highly effective in advancing our -- easy for me to say, our ongoing product enhancement programs and customer applications to meet critical releases and customer product road maps.

In addition to direct and indirect representatives, Aehr also has engineers and infrastructure around the world to support our customers and meet our contracts, response times and critical parts lead times for our installed base of Aehr Test products.

Personally, I feel very fortunate that Aehr Test is in the position to currently not have any employees yet directly impacted by this pandemic.

And that we have the capability, capacity and government support to be productive, effective and able to meet all customer needs at this time.

We're also in a position where our customers are open for business, which I realize is simply not the case with so many businesses around the world.

Now let me turn to our business highlights.

We're pleased with our results for the fiscal third quarter, which include continued profitability and strong gross margins.

Profitability for the quarter exceeded our historical business model, reflecting higher-than-average consumables as a percent of total revenue for the third quarter.

Despite the current challenging global environment, we remain engaged with a large number of potential new customers.

We continue to see a substantial number of customer evaluations of our FOX-NP, XP and CP products to address their production needs and test and burn-in on a number of applications.

We think this is a combination of so many of our customers' engineering teams having more time or more focus to work on improvements to the production processes so that they come out of this environment stronger than they came into it and/or because so many of our applications are related to the global infrastructure of IT and communications that are clearly more important than ever before and are being stretched to their limits.

We have several customers that are saying that they're trying to actually pull in plans for new programs and new products as a result of the new demands on the worldwide communication infrastructure.

We're currently working with more than a dozen new customers for production wafer or die-level test and burn-in that includes silicon photonics devices for 5G and data storage farms, power silicon carbide devices for automotive, sensors for mobile and automotive applications and memory devices for data storage and computing.

Our sales, marketing and applications teams remain very busy supporting new sales efforts, using online conferences, videos and other collaboration tools.

During the quarter, we shipped an additional FOX-XP multi-wafer test and burn-in system to meet the production ramp of a leading supplier of silicon photonics devices.

This customer continues to look to Aehr to support their high-volume production ramp and wafer-level burn-in capacity and to forecast significant growth in shipments for silicon photonics devices that we expect to drive the need for additional production test and burn-in capacity for multiple years into the future.

As we talked about on past calls, as our customers move to high-volume production test on our FOX-P systems, we see their ramps driving significant incremental capacity of both our systems and also our proprietary WaferPak contactors and DiePak carriers.

When they buy a FOX-XP or NP system from us, they also buy a set of either WaferPak or DiePak contactors that allow us to make contact to their specific and unique device design.

These consumables are needed with each new device they introduce or with each device shrink or new design.

During the quarter, we received orders totaling more than $2.9 million from our installed base of FOX test and burn-in system customers for our WaferPak and DiePak consumables, including orders from a single customer of approximately $2.3 million for DiePaks for test and mobile sensors.

Other device applications for these orders include production test of silicon carbide devices, flash memories and silicon photonics devices.

Shipments of our consumables for our FOX systems accounted for 51% of our total revenue for the third quarter.

As I've noted before, the consumable business continues long after a system is installed, and that as we grow our installed base, we believe we can reach a point where our WaferPak and DiePak contactors exceed over half of our annual revenue, providing stable baseline for Aehr Test.

Over time, we feel that the percent of our business made up of consumables will grow, although we'll still be -- it will still vary as a percent of total from quarter-to-quarter.

Turning to our packaged part and OEM chamber business.

As I noted on our last call, the low level of business we've experienced in our packaged part business has been expected and was already built into our financial forecast.

We've started to see some forecast for renewed market demand for packaged part burn-in systems from customers who are asking us about our high-voltage capability and adding this capability to our packaged part systems.

We see the need for high-voltage capabilities in both wafer-level and packaged part now as a new high-growth opportunity for Aehr Test.

These changes in our customer long-term forecast for our packaged part burn-in systems reflect a move towards higher voltages and other requirements for smartphone devices and automobiles, particularly with electric and hybrid automobiles and autonomous vehicle sensors.

As a result, we've seen a drop-off in demand of our older packaged part system configurations, and we're currently evaluating these markets.

Now turning to our guidance for our fiscal year 2020.

Currently, all of our customers have their wafer fabrication facilities open to support the critical infrastructure around the globe in information technology, communications and critical manufacturing sectors.

And Aehr is able to ship orders for systems, WaferPaks, DiePaks and parts needed to support these customers with little to no limitations or delays.

However, due to the uncertainty of the full impact of the COVID-19 pandemic on our customers, we simply cannot predict how this will impact our business in the near term, and we are taking a conservative stance to withdraw our previously provided guidance for fiscal 2020 year that ends this May 31.

Looking ahead, we remain optimistic about the significant market opportunities in front of us and about our customers and our unique capability to serve their test needs this year and beyond.

As we continue to focus on our selling resources and processes, we've continued to make some structural changes in a few areas of our company that we began last fiscal year to both position us for success in addressing our new market opportunities as well as improve our efficiency.

This month, we completed closure of our Japanese subsidiary and the transition away from direct sales in Europe, moving to sales representatives in both Europe and Japan.

I'm pleased to note that with these changes, we've already seen far better sales coverage of Europe, while at the same time, reducing our fixed cost in both Europe and Japan by approximately $120,000 per quarter, beginning at the start of our fiscal 2021 year, which will start this June 1. As a result of these changes, we'll be taking some onetime charges associated with these closures and layoffs of employees in those offices in our fiscal fourth quarter.

Lastly, I'm pleased to announce that we recently hired a new VP of Operations, Michael Brannan.

Michael comes to us with extensive background in the semiconductor test industry and particularly the printed circuit board and assembly and probe card industries, where our traditional manufacturing spend is over 75% of total today.

Michael is replacing David Fucci, who served as our VP of Operations for the last 6 years and is retiring at the end of May.

We wish David well and thank him for his contributions during the pivotal time in Aehr's history.

David's retirement has been in the works for some time, and we began looking for his replacement several quarters ago, well before the coronavirus outbreak.

We're excited to have Michael on board to lead our team in manufacturing operations, supply chain, quality and inventory management.

To conclude, we had 3 solid quarters before the world got hit by COVID-19.

We increased revenue by 34% year-over-year and most importantly, turned a $5 million loss into a profit, and we expect to get back on track once this crisis is over.

The fundamentals for Aehr Test remains strong long term, and we believe that we will emerge from this difficult period even stronger than we went in with an even larger number of customers committed to using our FOX systems to meet their production test and burn-in needs.

With that, let me turn it over to Ken before we open up the lines for questions.

Thank you, Gayn.

As Gayn noted, our financial performance for the third quarter included continued profitability and strong gross margins as well as lower operating expenses, reflecting our cost containment measures.

Net sales in the third quarter were $6.1 million, down 11% from $6.9 million in the preceding second quarter and up 93% from $3.2 million in the third quarter of the previous year.

The sequential decrease from the preceding quarter reflects a decrease of $841,000 in wafer-level burn-in revenues.

The increase from Q3 last year includes an increase in wafer-level burn-in revenues of $3.4 million, reflecting an equal mix of system revenues and WaferPak and DiePak revenues partially offset by a decrease in customer service revenues of $435,000.

Non-GAAP net income for the third quarter was $452,000 or $0.02 per diluted share compared to non-GAAP net income of $456,000 or $0.02 per diluted share in the preceding quarter and a non-GAAP net loss of $1.6 million or $0.07 per diluted share in the third quarter of the previous year.

The non-GAAP results exclude the impact of stock-based compensation expense, restructuring charges and write-down of excess and obsolete inventory.

On a GAAP basis, net income for the third quarter was $245,000 or $0.01 per diluted share.

This compares to GAAP net income of $251,000 or $0.01 per diluted share in the preceding quarter and a GAAP net loss of $3.2 million or $0.14 per diluted share in the third quarter of the previous year.

The GAAP net loss in Q3 of fiscal 2019 includes the impact of approximately $1.4 million or $0.06 per share in onetime restructuring and inventory write-down charges taken in the quarter.

Gross profit in the third quarter was $3 million or 49% of sales compared to gross profit of $3.2 million or 47% of sales in the preceding second quarter and gross profit of $272,000 or 9% of sales in the third quarter of the previous year.

The sequential increase in gross margin percentage is primarily due to a change in product mix, reflecting an increase in WaferPak and DiePak revenues from Q2.

The increase in gross margin over prior year Q3 is primarily due to the impact of $795,000 in inventory write-down charges, along with higher unabsorbed overhead costs due to lower revenue levels in the third quarter last year.

As we've noted on prior calls, our WaferPak and DiePak revenues are accounting for a more significant portion of our overall revenues, favorably impacting our gross margins as they maintain higher margins than our systems or pass-through products.

In the third quarter, our WaferPak and DiePak consumables business accounted for 51% of total revenues, up from 44% in the preceding Q2 and 46% in Q3 of last year.

Operating expenses in the third quarter were $2.7 million, a decrease of $216,000 or 7% from $3 million in the preceding quarter and a decrease of $652,000 or 19% from $3.4 million in the prior year third quarter.

The decrease in operating expenses from the prior year primarily reflects the impact of the restructuring charge of $607,000 taken in Q3 last year related to workforce reduction severance costs.

SG&A was $1.9 million in the third quarter, down from $2.2 million in the preceding second quarter and flat compared to $1.9 million in the prior year third quarter.

The sequential decrease is primarily due to a reduction in costs associated with new product introductions, including travel and presale support activities and lower commissions from a decrease in bookings.

R&D expenses were $845,000 in the third quarter compared to $795,000 in the preceding second quarter and $931,000 in the prior year third quarter.

Turning to the balance sheet for the third quarter.

Our cash and cash equivalents were $5.1 million at February 29, 2020, compared to $5.3 million at the end of the preceding quarter.

Accounts receivable at quarter-end was $3.5 million, down from $5.2 million at the preceding quarter-end primarily due to the impact of customer deposits and deferred revenue on current quarter revenues and a decrease in revenue from the prior quarter.

Inventories at February 29 were $9.3 million, down from $9.8 million at the preceding quarter-end primarily due to the consumption of inventory on hand at prior quarter, supporting current quarter revenues.

Property and equipment was $783,000 compared to $860,000 at the preceding quarter-end.

Customer deposits and deferred revenue, short term and long term, were $419,000, down from $1.9 million at the preceding quarter-end, related primarily to customer deposits offsetting current quarter revenues and the decrease in backlog from prior quarter.

Bookings in the third quarter totaled $3.1 million.

Backlog at February 29 was $3.6 million compared to $6.5 million at the end of the preceding second quarter and $6.9 million at the end of the third quarter of the previous year.

Now turning to outlook for fiscal 2020.

As Gayn noted, due to the uncertainty of the full economic impact of the COVID-19 pandemic on our customers, we cannot predict how this will impact our business in the near term, and we're taking the conservative stance to withdraw our previous provided guidance for fiscal 2020 ending May 31.

In terms of operating expenses, the company has implemented cost-reduction initiatives to reduce costs and align company resources for future growth.

Action taken, including dissolving our Aehr Test Systems Japan subsidiary and reducing head count at our Aehr Test Systems Germany subsidiary.

We expect to take a charge in the fourth quarter of fiscal 2020 of approximately $150,000, which includes severance payments for individuals impacted in the reduction and legal fees associated with these actions.

Through these actions, we expect to recognize cost savings of approximately $120,000 per year starting in Q1 of fiscal '21, which begins on June 1, 2020.

We will be moving to a sales rep distributorship model for sales in these regions.

The company is maintaining R&D investments and enhancements to our products for automotive, silicon carbide, silicon photonics and memory.

Even with restrictions in place resulting from the COVID-19 pandemic, our R&D application teams are working effectively to meet critical releases and customer road maps.

This concludes our prepared remarks.

We're now ready to take your questions.

Operator, please go ahead.

(Operator Instructions)

We'll take our first question from Christian Schwab.

Guys, when we go into next quarter, and if this lingers for multiple quarters, do we feel confident in our cash position?

And given the fact that some customers, you highlighted, possibly were talking about filling in orders?

Are those large expensive systems that you'd have to put into inventory?

Okay.

So there's a couple of jewels in there.

Let me start with the latter one there, Christian.

So I'll remind people, I mean it has been a great idea all along, and now it seems even like a better idea.

We do have policies in place with all of our large customers that systems and WaferPaks that are purchased from us, we receive a 30% down payment upfront to secure the order.

That allows us a significant ability or the way to meet all cash flow requirements to be able to build, qualify and ship those products to those customers.

So if we get customers and orders in for things that we don't have on hand in inventory, we're not needing to necessarily raise -- we don't need cash for that per se.

Keep in mind that DiePaks and WaferPaks, although we do have subassemblies that can be common or unique to them.

But we've also done a substantial amount of work during the last 9 months, actually something we probably should spend more time on, of getting the lead times down.

So now we're able to meet lead times for WaferPaks and DiePaks at about 8 weeks and less, which allows us to do quick turns, that includes the procurement assembly test of all of the material and out the door.

So that minimizes the cash requirements for that.

And keeping in mind, we still get down payments on them.

So your other question was just in general, if this thing extends, how are we doing for cash, you folks won't be surprised that we've spent a lot of time just looking at that, understanding if we need to hunker down for an extended period of time what that looks like.

I mean one of the things that we're trying to get our arms around completely in the model is right now is that we do have a believed to be sustainable level of base business in addition to the support contracts that are done annually.

Our certain support business tends to be about $1 million a quarter.

And then we see approximately $2 million a quarter of additional revenue that comes in as a base level business kind of in -- always be careful saying worst case, but the worst case.

And even at those really low levels given appropriate and consistent pay cuts or temporary pay cuts and things that we've done in the past.

We think that our cash position last us 5-plus quarters easily.

So our -- and that's without taking any, I'll call it, really drastic actions.

It would also mean that you would have to be at sustainably lower levels than we're expecting or forecasting during that entire time.

So you also mentioned the customers are pulling in, and that's interesting.

I mean we had a customer within just the last couple of days, on a new application, call us and ask for 8-week lead times on something.

So there really are -- we wake up every single day.

In fact, we have a daily conference call with the executive staff, every single morning to review the health of everybody and go all the way down, all the things that need to be accomplished.

We have so many customer engagements right now that are keeping us really busy.

The conservativeness, which is eventually going to be one of the questions, where is it coming from?

We have so much activity and so many customers that are talking up a storm about the things they want to do.

But as you guys know, when we get large orders, we report them.

So in the absence of reporting, that means there aren't those large orders.

So we were just taking a stance right now to just be as conservative as we possibly can going forward, while at the same time, you hear this level of optimism in our voice, which seems inconsistent with respect to just the environment.

But it's indicative of the customers kind of pushing really hard to get more products and pull things in.

In an optimistic scenario, I guess, my last question and follow-up is, is there any new customers or new customer applications for existing customers that could lead to meaningful revenue in calendar 2021?

You mean, from a longer term, are there some big deals out there?

Or is that kind of like overly simplifying?

Yes.

I mean, Gayn, you highlighted a lot of opportunities and a lot of different verticals.

I'm just wondering -- and a lot of customer engagements that you're having daily meetings about.

I'm just wondering if some engagements will happen, others will not.

But is there anything out there that you're like super excited about from a revenue perspective?

Yes.

Okay.

So I mean there's 2 things.

One of them is the piece that is sort of, I guess, you wake up every day and read the news, that is maybe surprising, is the number of engagements with people that are talking about things they want to ship into this summer or sooner or at this fall or -- and so you talked about 2021.

I'm talking to you about customers talking about ranking and pulling things into this calendar year.

Related to next year, yes, we actually -- we talked about it before.

We booked a deal with our first FOX-CP customer, which is the integrated prober version for what we were kind of elusive on but is a data storage application that is an enormously large unit volume that we believe they would start to kick in their production volume and need -- that need would drive capacity of FOX-CP test cells.

That, right now, we see could start towards the end of this year and be at 2021, the start of the major ramp, if you will, then.

We have engagements on multiple mobile applications that include things this summer, this fall I believe, next summer, there are some things that are potential there that have more upside than the recent couple of years that we're talking about.

And then the silicon carbide customers that we're engaged with right now, the unit volumes around the silicon carbide, the long test and burn-in times and the yield implications, the improvements that we're able to give people seems pretty exciting that can move the bar.

And of course, we spend a ton of time talking about the silicon photonics customers and everything related to 5G and the data storage, and that's probably the bulk of the number of companies that are saying, "I want to pull in, pull in, pull in because they're actually being asked to put more infrastructure in place.

Let's accelerate the stuff that's going on with the data servers or the 5G infrastructure.

So there are -- there's a mix of things both this calendar year as well as next year that look very promising.

We'll take our next question from [John Fichthorn].

First question is, this quarter was maybe below consensus or at least.

And so that -- the quarter ended in February, it was kind of pre corona, it's a little down sequentially.

It sounds like things are going really well.

It seems like things have been going really well.

Things have been trending in the right direction.

Why the trend break in this quarter?

Well, I mean, just by the numbers, right, we ended up with a backlog of $3.6 million, is it, Ken?

Yes, $3.6 million.

Yes.

So we start off March 1 with the backlog of $3.6 million.

Clearly, if we don't get more orders, we would only have $3.6 million to ship.

Now we absolutely have systems, NP, XPs, DiePaks, WaferPaks that can turn within the quarter.

But as the quarter draws on, the question is, are they going to come in, in time to come in this quarter?

Or is it going to be moving into June?

And customers are talking up a storm about imminent orders, but I'd like to see them.

I mean I think that's really where we sat around as a Board just a few days ago and said, what do you do?

How do you describe your end of year when you have things that can shift between May and June?

And so we just said, let's just pull it off the table.

People -- I mean, to sit here and be extra bold right now would seem to be completely against the grain.

There -- we could still have a good quarter this quarter, and we could have not so good a quarter this quarter.

But for the quarter that ended in February, what was the weakness in that quarter?

Because the question I'm trying to answer is, are you pulling guidance because of uncertainty over coronavirus like you're saying?

Or is there already some softness in the quarter ended February that I should be concerned about, that's a red flag outside of the coronavirus uncertainty?

Yes.

I mean, we certainly have had customers that we were expecting some orders in like late in the quarter for shipments in Q4, even some orders that potentially could have come in towards the end of the quarter, that didn't come in.

And we're trying to get our arms around, is it -- can we point to specific things that are coronavirus-related?

I would say, no, nor can we specifically point to exactly why some of the ramps are shifting left or customers that were implying they're going to place orders immediately didn't.

I can't help but feel that any CEO is wondering, is this something I'm absolutely positive we have to pull the trigger on now or can I just wait a couple of weeks or something.

The one thing that we're not seeing is that the ramps are going away.

As I said before, I really feel -- we could be at such a different place.

I mean I get -- we get weekly calls, in some cases, twice a week from key customers saying, you're still fine.

Can you do a deep dive on your supply chain?

Are all your suppliers still around?

We're forecasting these needs and these ramps, and you need to tell me you're going to be able to ship to me, right?

And so you've got that going on at the same time that obviously, that orders haven't come in, that would be consistent with what our original guidance would have been to finish the year out.

So I feel -- like I said, it's not like we're a restaurant and people aren't coming into the restaurant because of coronavirus.

So you can't point specifically to that but there does seem to be a general cautiousness going on in capital equipment out there that I feel like we all feel.

And so the caution -- the cautious guidance as opposed to the softer quarter is really your freight orders won't show up, isn't it?

It's not duty -- if they all showed up, could you get it to them?

It sounds like there's lots of activities, but is it...

Yes.

I mean I could ship more this quarter than last quarter, still to this day if we had additional orders that showed up today.

I have the inventory and material to be able to do that.

So that -- I mean to give you an idea of the sensitivity.

So it's -- but you give -- you wait 3, 4, 5 more weeks and then we can't.

So Gayn, could I just add a little something here?

Yes, please.

Also the mix makes a difference.

So keep in mind, DiePak, WaferPaks are a more custom product.

The lead times are much, much longer relative to our system that we have in-house and on hand.

We actually even have a marketing lab that we've built up over the last several quarters that we could quickly turn a system order of any configuration very easily by the end of the quarter as long as that order came in.

Absolutely.

So it's more order nervousness than it is your ability to deliver.

And that's not due to activity.

It's just concern that, that activity might not turn into an order.

Is there something concrete you can point to?

Because it sounds like everything you say is, gee, we're on fire, but we're pulling guidance.

So we're all going to try and connect that we're on fire to that we're pulling guidance, whether it's cancellations, whatever it is, is there anything?

Yes.

I mean, actually, that's a very specific question I want to answer.

We have had no cancellations, right?

We've actually had no push-outs.

Everything we have in backlog, the customers have called us and asked if we can ship faster.

We are pointing out the backlog isn't very big.

We even have customers that haven't given us the orders that are asking us to ship faster.

I love that conversation.

So yes, it would seem inconsistent, and we're just trying to give you as raw data as we possibly can.

I -- we had anticipated having a really good quarter this quarter.

And so I can't help but believe the only things that really makes sense is that there's cautiousness of people just trying to hold their right, get their arms around things.

This certainly feels, I think we would believe that as we get through this thing, our business would come back just as strong as ever.

And like I said, we tried to add the color behind it.

I mean we've had an uptick in customer engagements.

In the last 3 weeks, I mean, I can probably think of 4 or 5, like, where are these guys coming from?

And I mean, there's certainly a sense that they have time on their hands, maybe.

There are people that are saying, you know what, we've got to move towards this or we've got to pull over to this resource.

What can you do?

Can you test these parts and the answer in many cases is yes.

We're confident we can build it.

We don't -- we had a customer say we can't travel.

Can we do a video conference and give a demonstration of your equipment?

We're getting pretty good at that stuff.

It's kind of interesting.

Okay.

Last question...

[John], I know they're not super clear answers.

Go ahead.

No.

I -- look, it's not a super clear time.

I understand.

So your -- the linearity of this quarter -- I mean I know your standard after business or something is in the last month.

I don't know if that's the right number.

But I don't know, any thoughts on linearity or book and ship in the quarter and kind of when you'll know.

So that one I will fess up to.

It has -- it is very typical for us to have a disproportionate amount of our bookings in the third month, often more than half, okay?

And then it kind of repeats itself because we ship everything we can before the end of the quarter.

And then manufacturing sitting around tumbling their thumbs in the first month.

That is very true in this quarter.

In fact, the timing of the -- if you will, the stay-at-home directives have been almost unfelt by us.

We've not had any restrictions yet.

We actually don't have everybody in the office right now.

But anybody who needs to be is there.

And so -- but as we get towards May, we are already planning that the manufacturing floor is expected to be relatively full.

And we've been redistributing our DiePak and WaferPak labs to the other manufacturing floors to actually make room so that we can keep our 6 feet distances, we're all talking to, okay, how are we going to be creating up these systems in May when it takes 2 people to move a tool and how will we think through that so that we can maintain social distancing at the same time that we are going to start seeing our manufacturing folks coming back and filling up the place.

We'll take our next question from Geoffrey Scott.

Going back to last quarter, you reported that you had 3 silicon photonics customers in high-volume production.

Is it still 3?

Or have you added 1?

So I think I might have chosen the word production because some are higher than others.

So I don't want to give relative terms -- let me just think through here.

I have -- I still have -- I think we still -- gosh, I wish Vernon was here.

I think -- I know the 3 are still in production and I believe we have another one that might be shipping parts off of it now.

So it might be a fourth.

Okay.

Are all of those customers using the FOX to solve the same problem?

Or are the problems unique to each of those 3 customers?

Well, they're slightly different.

But because they listen in, I want to be careful with that.

So let me make it generic though.

They all are -- they all solve a similar problem of what we would call aging and stabilization.

So it turns out that all silicon photonics transceivers, the output laser itself, it -- during its first 24 to 48 hours of continuous use in operation, the output efficiency drops and the power, therefore, for the input power, you get less output power.

That's a big problem with multichannel fiber optic communication transceivers.

You can't have each of the 4 laser wave like stick of colors and different power outputs.

They all need to be balanced, okay, or else you lose bandwidth.

And so they all specify the output power to be stable over time.

But in order to do that, one of the manufacturing process steps is they need to stabilize the lasers, which our tool does.

They've always had to do this.

The traditional device though was done discreetly, and it was burnt in or aged in, in most cases, homegrown test base in big rooms and they were hand-placed in it and 48 hours later, you would come back and the thing has aged.

And then you test it and it meets certain qualifications, you pick it out and you can place it into these transceivers.

Now keep in mind, these transceivers for these high-performance ones were $700 -- $7,000 apiece.

The real jewel, if you will, in silicon photonics that folks like the Intels of the world are out claiming is the scalability of basically taking a silicon wafer, creating all of the transceiver components on it and then effectively overlay or attaching these laser processes so that the laser is directly attached to the silicon.

The trick is those lasers still must be aged or stabilized.

And what we do is we can stabilize them in wafer form.

We test all the lasers on a single wafer, thousands of them, in parallel, which gives -- it allows you to maintain the cost effectiveness and the scale of doing wafer-level silicon photonics devices.

So it is an enabling capability.

So in all of our customers, we're doing the stabilization of those lasers and when we talk about silicon photonics devices.

Now each of our customers also does slightly different things in terms of test and other types of functional infant mortality performance-related to specifications that are unique to them.

That makes our system more valuable to them.

But they're all a little bit different.

But it's the stabilization process which is kind of the most valuable problem that's being solved by FOX.

I would say that that's fair.

And since the FOX has this performance and capability to discern every single device, good from bad, the customers are taking advantage of that.

But it would be fair to say, if it weren't for them using it for stabilization, they probably wouldn't have done that other test.

Okay.

Fair enough.

Again, in Q2, you said that you had a new customer for -- silicon carbide customer for automobile applications, that was high-voltage and high temperature.

Was that a onesie or was that the first of potentially more orders?

We believe that is the first of more orders, and that was an 18-wafer system.

So that tool itself has the ability to test 18 wafers at a time.

And my belief, my understanding from last night's report is they're running 16 or 17 wafers at a time right now with the mix of WaferPaks and they have more on order and more planned.

Which means that the next orders are forthcoming.

And then the question is -- that's what we are really describing to you.

That's okay.

In the business highlights today, you said that you shipped an additional FOX-XP for silicon photonics.

Was that to one of your original lead customers or not?

Yes.

It was.

It was.

And then the...

And then we had announced the order before.

I just was trying to explain where did the $6 million come from.

Yes.

And the mobile sensors, again, was to a lead customer, right?

It was.

The WaferPaks and DiePaks.

The order, the order, the order, yes.

So a big chunk of that order -- those orders were fit up and you could imagine that, that would be something that we would be scrambling to be shipping right now because they're beating us up every day to give them as quick as we can.

Yes.

But their reemergence was not definite for fiscal 2020.

It sounds like their activity has been accelerated.

Is that fair?

We've actually -- they have been forecasting this for a while in anticipation of a periodic need that we think is pretty regular every single year.

And it did come in.

So in that sense, I wouldn't say -- it was certainly not a bluebird.

We were building DiePaks for them throughout the fall.

We were critically important.

Every single order they've given us, they've been pressing us for as quickly as we can possible.

It is not the only engagements with them, there are more.

Okay.

You said you were engaged with more than a dozen potential new customers.

That is a continuation of the dozen new customers that you were engaged with a quarter ago, right?

I have to go through what the math is.

But for -- I think if -- to be fair, we have -- well, we've only announced 1 or 2 new customers during the year.

One of the customers is interesting.

One of the ones that came back this last week had -- we're engaged with last summer, and they -- we had limited

(technical difficulty)

run off and decided they're going to try and do it in packaged-level instead, which we understand.

We sell packaged part systems too, but they came back.

So I don't know how I'd have to do my math there.

I do force myself to count out loud, we do that as part of the audit committee whenever we say that [to customers] that there really are that many -- I think it was like 12 or something.

I'm sorry, it was like 14.

So it's like 2 more than what we had said was greater than a dozen.

Yes, Gayn, and I did validate that from our press release that there was more than 12, and I do have the list.

Yes.

Sorry, Geoffrey, can't give it to you.

I know.

Last quarter, you talked about solar panels.

Is there any activity in there?

No.

I mean the only thing that we specifically know that there's an application out there is that the silicon for -- I'm sorry, silicon carbide devices are particularly good in the solar panel power conversion.

So typical device applications, one of the big ones everybody's heard about is Tesla uses those in their electric cars.

All the electric cars are going to be using silicon carbide motor controller systems and power systems in it for certain.

But another one of the big ones is actually all the solar power conversions.

But that's it.

We're not doing anything related to panels themselves or the electrical battery of the panel.

We don't have anything like that.

Yes, I was just surprised to hear you talk about it last quarter.

And it kind of surprised me.

We'll take our next question from Larry Chlebina.

The several customers that are pulling in plans, does that include any systems?

Or is that mostly consumables?

Both.

Both?

And...

Yes.

I mean -- yes, I have one that's asking for WaferPaks and DiePaks and plan to use it on their current system.

And I have some that are new customers, so there'd be new systems and new WaferPaks and DiePaks.

So when you talk about that, is that like pulling in within the next 3 months?

Or is it still further out?

Or I mean how would you define that so we're clear?

I mean, one, for certain, I mean, we just signed all the NDAs and everything within the last 48 hours, and they're asking for 8 week lead times.

So it has to be...

Is that a -- would that be a system or a...

That was actually one of the -- that was one of the Paks.

It was one of the -- more of the consumables.

We have -- yes.

I mean I have a customer that has been talking about that their end customers are pulling in some 5G infrastructure requirements.

And increasing their forecasts for them, and they are -- they haven't even ramped yet.

So that would be an example where they will absolutely need additional capacity of the systems and WaferPaks, DiePaks.

I have both.

Okay.

Did I just hear you correctly in saying your pipeline is 14 potential customers right now or did I mishear that?

Is it 12...

Yes.

I mean just in FOX related, I think, I counted about 14 of them.

More than 12.

That's how we wanted to make sure.

And as I know there's a couple more.

And then we actually have probably another half a dozen packaged part, which we haven't really been talking a lot about.

Of those 14, how many of those would be in regards to silicon carbide?

I don't have it in front of me, but -- I actually probably don't want to do that because eventually, you go down to -- you're going to really ask me how many are memory.

So I'm just going to stay generic right now.

Actually, that was my next question.

I know.

So I'm going to stay very generic right now because for all kinds of reasons.

But it is multiple of each, more than 1 or 2 in every one of those categories.

I know in the past, you mentioned that in that pipeline, you had 3 memory potential customers.

But unlike in the past, you did announce as part of the $2.9 million in total consumables recently, that 1 included a WaferPak for flash memory, potential customer.

So somebody spending money -- oh, go ahead.

Yes.

I actually -- yes, Larry, I don't -- actually don't want -- you're a particularly aware buyer of details or everything that I'm going to be very specific.

So that was not for a new customer and that was a current memory customer.

That was a -- sorry, that was a what?

It's one of our installed base customers already.

It's not one of the new ones.

Okay.

Where do you stand on automating?

I know your -- you said in the past that you're involved in designing automation, to automate the next...

Yes.

So let me -- actually, Larry, I want to -- let me jump in on that.

I actually want to talk about my -- the future on that at this point.

As the pioneers with competitors and things like that, too.

I will -- yes, I know that we have generically talked about at some of our public events and things like that, that we absolutely see customers asking us to do more and more automation.

And we -- how do we take our products and make them more production-worthy so that they can even go to higher and higher volumes.

And those are things that we are spending money on.

I'm going to leave it at that.

Okay.

And the data centers are obviously working overtime with so many people at home, working from home and burning up the Internet.

Do you see maybe additional business from maybe existing customers on the silicon photonics side?

Or maybe these pull-ins...

Yes.

That's what it feels like.

I mean I think -- I mean I know very specifically, there's 5G infrastructure as in towers that are driving them, and there are data center things that people are not [fully backing us].

So those are -- and that would bode well.

And I think what we're seeing is, there's sort of the Wild West of everybody and their brother rushing in trying to do silicon photonics because it's just at a price point, it start -- you start to where shifting -- where -- if fiber optic bandwidth is as cheap as copper, it just -- there's all you can build.

As best as I can tell, it is 100% supply-limited.

There's not enough silicon photonics out there.

Every one of them is being bought up.

So there are people, big and small, doing all kinds of things to try and put more and get more capacity out there.

One last thing on the memory.

So you still have 3 active potential memory customers in that pipeline.

Did I -- did you quantify that?

We are actively engaged with multiple memory suppliers on road maps related to wafer-level burn-in.

And is there any kind of time frame on that where it might be kicked off?

I would expect that we would have to build WaferPaks to talk about the concept initially and then...

The prober types and things like that.

I mean I believe that this is something that would be for a -- this is like a 2021 product.

And as we get a little closer at engagement, we can kind of narrow in when that would be.

We are actively spending money in R&D with respect to road map products this quarter, next -- each quarter throughout this calendar year.

We'll take our next question from Tom Diffely.

Curious what you're seeing on the supply chain right now.

And if you were at full capacity, would you be having any kind of supply issues?

Yes.

So we've been really paranoid about that as well.

And for the most part, all of the distributors and our subcontract manufacturers are all open.

Let me be more specific.

It's pretty much everybody is.

We have a couple of small mechanical assembly guys who have asked us to provide them with links to our letter that we put out on the website related to our positioning as a critical supplier of the critical infrastructure to basically as part of their justification to keep shipping upon demand or everything.

We've actually have little or no direct impacts related to this.

Everyone that we have is able to ship within their steady lead times, which -- I mean it seems kind of confusing.

But by the way, many of our subcons are -- when we -- I've talked to about -- picked up the phone and talked to them, listen, we're directly involved with military.

We're -- it wasn't even -- we're a contract manufacturer to a capital equipment supplier to semiconductors that are important for IT, which is sort of a progression, that's normal.

They're like the government is saying, you will stay open.

So far, that's good.

Yes.

So Ken, I was wondering...

Sorry.

Can I do one more?

Sure.

Can I just do one more on this?

So the other thing is, we have basically 0 supply chain out of China right now.

All of our critical infrastructure require -- all of our critical components we have put things in place for dual sourcing long before this.

And quite frankly, when the tariffs kicked in last year, we placed our last order with something out of China last February.

So we actually -- as things got ugly, and of course now, it's not -- we're not only talking about China, it's a worldwide crisis.

But at that time, we were already had dual sources on things.

So we've been able to purchase things without a critical supply impact right at that time.

Okay.

No, that's helpful.

So Ken, I was wondering, when you moved to a distribution model for Japan and Europe, what does that do to your internal model?

Does that impact margins, either gross or operating?

So it does give us a little bit more flexibility from a variable cost standpoint, from an overall margin standpoint, it's not going to make a difference.

Those costs will hit in our operating expense, sales and marketing area.

But it really moves from a fixed cost structure to a variable cost structure, which I think will ultimately benefit our bottom line.

Okay.

So even the rate that the distributor gets was fairly similar to what you're paying internally then?

Correct.

Okay.

I see there are no further questions at this time.

I would now like to turn the call back to management for closing remarks.

Operator, why don't we just give anyone a second chance, anyone else?

Yes, sir.

(Operator Instructions)

Okay.

No one.

All right.

Well, folks, we really appreciate you taking the time to listen in.

We actually had a fairly long list and we appreciate everybody calling.

If you have other further questions -- I almost -- I think I've always ended this with if you're in town, stop by, but this will be the time, I'll tell you don't.

So -- but we'd be happy to set up a video conference or something else, we've gotten exceptionally good at that, and answer your questions as you need it.

Everybody stay safe and healthy.

Okay.

Thank you very much.

Bye-bye.

Thank you, ladies and gentlemen.

This concludes today's teleconference.

You may now disconnect.